<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
------------------
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
----------------------------
(Exact name of registrant as specified in its charter)
United Stationers Inc.: Delaware United Stationers Inc.: 36-3141189
United Stationers Supply Co.: Illinois United Stationers Supply Co.: 36-2431718
- -------------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 East Golf Road, Des Plaines, Illinois 60016-1267
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 699-5000
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
United Stationers Inc.: Yes ( X ) No ( )
United Stationers Supply Co.: Yes ( X ) No ( )
On October 30, 1998, United Stationers Inc. had outstanding 36,891,105 shares
of Common Stock, par value $0.10 per share. On October 30, 1998, United
Stationers Supply Co. had 880,000 shares of Common Stock, $1.00 par value per
share, outstanding; United Stationers Inc. owns 100% of these shares.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
IMPORTANT EXPLANATORY NOTE 1
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997. 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months
ended September 30, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 1998 and 1997. 6
Notes to Condensed Consolidated Financial Statements. 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13
PART II - OTHER INFORMATION 19
- ---------------------------
SIGNATURE 20
- ---------
INDEX TO EXHIBITS 21
- -----------------
</TABLE>
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPORTANT EXPLANATORY NOTE
--------------------------
THIS INTEGRATED FORM 10-Q IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC. ("UNITED"), A DELAWARE
CORPORATION, AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO.
("USSC"), AN ILLINOIS CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED
STATIONERS INC. IS A HOLDING COMPANY WITH NO OPERATIONS SEPARATE FROM ITS
OPERATING SUBSIDIARY, UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO
SEPARATE FINANCIAL INFORMATION FOR UNITED STATIONERS SUPPLY CO. AND ITS
SUBSIDIARIES HAS BEEN PROVIDED HEREIN BECAUSE MANAGEMENT FOR THE COMPANY
BELIEVES SUCH INFORMATION WOULD NOT BE MEANINGFUL BECAUSE (I) UNITED
STATIONERS SUPPLY CO. IS THE ONLY DIRECT SUBSIDIARY OF UNITED STATIONERS
INC., WHICH HAS NO OPERATIONS OTHER THAN THOSE OF UNITED STATIONERS SUPPLY
CO. AND (II) ALL ASSETS AND LIABILITIES OF UNITED STATIONERS INC. ARE
RECORDED ON THE BOOKS OF UNITED STATIONERS SUPPLY CO. THERE IS NO MATERIAL
DIFFERENCE BETWEEN UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO.
FOR THE DISCLOSURE REQUIRED BY THE INSTRUCTIONS TO FORM 10-Q AND THEREFORE,
UNLESS OTHERWISE INDICATED, THE RESPONSES SET FORTH HEREIN APPLY TO EACH OF
UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO.
-1-
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
United Stationers Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
United Stationers Inc. and Subsidiaries as of September 30, 1998, and the
related condensed consolidated statements of income for the three month and
nine month periods ended September 30, 1998 and 1997, and the condensed
consolidated statements of cash flows for the nine month periods ended
September 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United Stationers Inc. as of
December 31, 1997, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated January 27, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
/s/Ernst & Young LLP
Chicago, Illinois
October 22, 1998
-2-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,938 $ 12,367
Accounts receivable, net 223,491 311,920
Inventories 510,252 511,555
Other current assets 18,228 14,845
---------- ----------
Total current assets 776,909 850,687
Property, plant and equipment, net 164,984 164,543
Goodwill, net 182,211 111,852
Other 17,799 20,939
---------- ----------
Total assets $1,141,903 $1,148,021
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 331,618 $ 236,475
Accrued liabilities 121,729 118,496
Current maturities of long-term debt 7,365 44,267
---------- ----------
Total current liabilities 460,712 399,238
Deferred income taxes 27,003 19,383
Long-term obligations 305,785 506,092
---------- ----------
Total liabilities 793,500 924,713
Stockholders' equity:
Common stock, $0.10 par value; 40,000,000 authorized;
36,864,150 and 31,810,546, respectively, issued and outstanding 3,686 3,181
Additional paid-in capital 301,589 213,042
Retained earnings 43,128 7,085
---------- ----------
Total stockholders' equity 348,403 223,308
---------- ----------
Total liabilities and stockholders' equity $1,141,903 $1,148,021
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $795,407 $650,912
Cost of goods sold 659,132 536,470
-------- --------
Gross profit 136,275 114,442
-------- --------
Operating expenses:
Warehousing, marketing and
administrative expenses 91,594 80,836
-------- --------
Income from operations 44,681 33,606
Interest expense 7,348 12,998
Other expense 2,820 - -
-------- --------
Income before income taxes 34,513 20,608
Income taxes 14,634 8,741
-------- --------
Net income 19,879 11,867
Preferred stock dividends issued and accrued - - 611
-------- --------
Net income attributable to common stockholders $ 19,879 $ 11,256
-------- --------
-------- --------
Net income per common share $ 0.54 $ 0.46
-------- --------
-------- --------
Average number of common shares outstanding 36,749 24,684
Net income per common share - assuming dilution $ 0.52 $ 0.37
-------- --------
-------- --------
Average number of common shares outstanding -
assuming dilution 37,909 30,267
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 2,259,890 $ 1,895,974
Cost of goods sold 1,874,663 1,568,056
----------- -----------
Gross profit 385,227 327,918
----------- -----------
Operating expenses:
Warehousing, marketing and
administrative expenses 264,210 231,270
Non-recurring charge 13,852 - -
----------- -----------
Total operating expenses 278,062 231,270
----------- -----------
Income from operations 107,165 96,648
Interest expense 28,690 41,526
Other expense 5,206 - -
----------- -----------
Income before income taxes 73,269 55,122
Income taxes 31,070 23,376
----------- -----------
Income before extraordinary item 42,199 31,746
Extraordinary item, loss on early retirement of
debt, net of tax benefit of $3,971 (5,907) - -
----------- -----------
Net income 36,292 31,746
Preferred stock dividends issued and accrued - - 1,528
----------- -----------
Net income attributable to common stockholders $ 36,292 $ 30,218
----------- -----------
----------- -----------
Net income per common share:
Income before extraordinary item $ 1.24 $ 1.23
Extraordinary item (0.17) - -
----------- -----------
Net income per share $ 1.07 $ 1.23
----------- -----------
----------- -----------
Average number of common shares outstanding 33,930 24,528
Net income per common share - assuming dilution:
Income before extraordinary item $ 1.19 $ 1.02
Extraordinary item (0.17) - -
----------- -----------
Net income per share $ 1.02 $ 1.02
----------- -----------
----------- -----------
Average number of common shares outstanding -
assuming dilution 35,586 29,731
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 36,292 $ 31,746
Depreciation and amortization 20,554 20,006
Amortization of capitalized financing costs 1,730 3,350
Extraordinary item - early retirement of debt 9,877 - -
Changes in operating assets and liabilities 242,683 72,413
--------- ---------
Net cash provided by operating activities 311,136 127,515
Cash Flows From Investing Activities:
Capital expenditures (14,873) (8,141)
Proceeds from disposition of property, plant
and equipment 36 44
Acquisition of Azerty, Inc., net of cash acquired of $0 (115,740) - -
--------- ---------
Net cash used in investing activities (130,577) (8,097)
Cash Flows From Financing Activities:
Retirement and principal payments on debt (548,603) (40,085)
Borrowings under financing agreements 350,000 - -
Net repayments under revolver (46,000) (52,000)
Issuance of common shares 99,001 18
Payment of employee withholding tax related to
stock option exercises (16,525) - -
Redemption of preferred stock - - (21,172)
Preferred stock dividends - - (141)
Financing costs (4,526) - -
Other (1,335) 41
--------- ---------
Net cash used in financing activities (167,988) (113,339)
--------- ---------
Net change in cash and cash equivalents 12,571 6,079
Cash and cash equivalents, beginning of period 12,367 10,619
--------- ---------
Cash and cash equivalents, end of period $ 24,938 $ 16,698
--------- ---------
--------- ---------
Other Cash Flow Information:
Income taxes paid $ 20,302 $ 13,381
Interest paid 23,104 33,605
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited,
except for the Consolidated Balance Sheet as of December 31, 1997. These
financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Accordingly, the
reader of this Form 10-Q should refer to the Company's Form 10-K for the year
ended December 31, 1997 for further information. In the opinion of the
Company's management, the condensed consolidated financial statements for the
unaudited interim periods presented include all adjustments necessary to
fairly present the results of such interim periods and the financial position
as of the end of said periods. Certain interim expense and inventory
estimates are recognized throughout the year relating to marginal income tax
rates, shrinkage, price changes and product mix. Any refinements to these
estimates based on actual experience are recorded when known. All common and
common equivalent shares have been adjusted to reflect the 100% stock
dividend, effective September 28, 1998.
2. OPERATIONS
The Company operates in a single segment as a national wholesale distributor
of business products. The Company offers approximately 35,000 items from more
than 550 manufacturers. This includes a broad spectrum of office products,
computer supplies, office furniture and facilities management supplies. The
Company primarily serves commercial and contract office products dealers. Its
customers include more than 20,000 resellers -- such as computer products
resellers, office furniture dealers, mass merchandisers, sanitary supply
distributors, warehouse clubs, mail order houses and office products
superstores. The Company has a distribution network of 40 business products
distribution centers, 19 janitorial and sanitation distribution centers and 5
computer consumables, peripherals and accessories distribution centers. In
addition to its broad product offering, the Company provides value-added
marketing and logistics services to both manufacturers and resellers.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards
Statement 130, "Reporting Comprehensive Income." Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity. Statement 130 requires foreign
currency translation adjustments, which prior to adoption were included in
stockholders' equity, to be included in other comprehensive income.
For the three-month and nine month periods ended September 30, 1998 and 1997,
total comprehensive income amounted to $19,062,000, $11,248,000, $34,961,000,
and $30,166,000, respectively.
-7-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the weighted average number of common and common equivalent
shares outstanding during the period. Stock options and warrants are
considered to be common equivalent shares. Weighted average shares and
earnings per share have been restated to reflect the share conversion
resulting from the 100% stock dividend, effective September 28, 1998.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NUMERATOR:
Income before extraordinary item $ 19,879 $ 11,867 $ 42,199 $ 31,746
Extraordinary item - - - - (5,907) - -
-------- -------- -------- --------
Net income 19,879 11,867 36,292 31,746
Preferred stock dividends issued and accrued - - 611 - - 1,528
-------- -------- -------- --------
Net income attributable to common
stockholders $ 19,879 $ 11,256 $ 36,292 $ 30,218
-------- -------- -------- --------
-------- -------- -------- --------
DENOMINATOR:
Denominator for basic earnings per share -
Weighted average shares 36,749 24,684 33,930 24,528
Effect of dilutive securities:
Employee stock options 1,160 3,110 1,656 2,732
Warrants - - 2,473 - - 2,471
-------- -------- -------- --------
Dilutive potential common shares 1,160 5,583 1,656 5,203
-------- -------- -------- --------
Denominator for diluted earnings per share -
Adjusted weighted average shares
and assumed conversions 37,909 30,267 35,586 29,731
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share:
Basic
Income before extraordinary item $ 0.54 $ 0.46 $ 1.24 $ 1.23
Extraordinary item - - - - (0.17) - -
-------- -------- -------- --------
Net income per share $ 0.54 $ 0.46 $ 1.07 $ 1.23
-------- -------- -------- --------
-------- -------- -------- --------
Diluted
Income before extraordinary item $ 0.52 $ 0.37 $ 1.19 $ 1.02
Extraordinary item - - - - (0.17) - -
-------- -------- -------- --------
Net income per share $ 0.52 $ 0.37 $ 1.02 $ 1.02
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
-8-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. AZERTY ACQUISITION
On April 3, 1998, the Company completed the acquisition of all of the capital
stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID
Wholesale Inc., and AP Support Services Incorporated (collectively, the
"Azerty Acquisition"), which together comprised substantially all of the
United States and Mexican operations of the Office Products Division of
Abitibi-Consolidated Inc. (collectively, the "Azerty Business"). The
aggregate purchase price paid by the Company for the Azerty Business was
approximately $115.7 million (including fees and expenses) following an
initial post-closing adjustment, and subject to final audit and review by the
Company. The Azerty Business is primarily a specialty wholesaler of computer
consumables, peripherals and accessories in the United States and Mexico. It
is currently anticipated that the Company's existing Micro United division
will be integrated into the Azerty Business.
The purchase price for the Azerty Business was funded from borrowings under
the Company's New Credit Facilities (as defined).
6. THE NEW CREDIT FACILITIES
On April 3, 1998, in order to fund the purchase price of the Azerty Business,
refinance borrowings under the Company's then-existing senior secured credit
facilities, and pay related fees and expenses in connection therewith, the
Company amended and restated its then-existing credit agreement (as amended
and restated, the "New Credit Agreement") governing its senior secured credit
facilities (the "New Credit Facilities"). The New Credit Facilities consisted
initially of a $250.0 million six year revolving credit facility (the
"Revolving Credit Facility"), a $150 million six-year tranche A term loan
facility (the "Tranche A Term Loan Facility"), and a $100.0 million six and
three-quarter year tranche B term loan facility (the "Tranche B Term Loan
Facility"). The net proceeds of the Notes Offering (as defined) were used to
permanently repay a substantial portion of indebtedness outstanding under the
Tranche B Term Loan Facility and the remainder of such facility was
permanently repaid with proceeds from the sale of certain receivables,
following which the Tranche B Term Loan Facility was terminated. As a result
of the early retirement of the Existing Credit Facilities, approximately $9.5
million ($5.7 million net of tax benefit of $3.8 million) of unamortized
financing fees were recorded as a non-cash extraordinary charge during the
second quarter of 1998.
7. RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into a $163.0 million 364-day liquidity
facility (the "Receivables Securitization Program"), pursuant to which the
Company sells certain of its U.S. dollar trade receivables to a wholly-owned
offshore bankruptcy-remote subsidiary of the Company (the "Receivables
Company"). The Receivables Company then transfers the Eligible Receivables to
a third-party, multi-seller asset-backed commercial paper program existing
solely for the purpose of issuing commercial paper rated A-1/P-1 or higher.
Costs related to this facility vary on a monthly basis and are generally
related to certain interest rates. These costs are included in other expense.
The condensed consolidated balance sheet at September 30, 1998 and the
condensed consolidated statement of cash flows for the nine months ended
September 30, 1998 reflect the sale of approximately $160.0 million in trade
accounts receivable. The proceeds to the Company were used to reduce
borrowings under the New Credit Facilities.
-9-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. THE NOTES OFFERING
On April 15, 1998, USSC consummated the sale of $100.0 million of its 8.375%
Senior Subordinated Notes due 2008 (the "8.375% Notes") in a transaction not
subject to the registration requirements of the Securities Act of 1933. The
8.375% Notes were immediately resold by the initial purchasers thereof in
reliance on Rule 144A under the Securities Act of 1933. The aggregate net
proceeds to the Company (aggregating approximately $97.0 million) from the
sale of the 8.375% Notes were used to repay a substantial portion of
indebtedness outstanding under the Tranche B Term Loan Facility. As a result
the Company recorded an extraordinary charge of approximately $0.4 million
($0.2 million net of tax benefit of $0.2 million) related to unamortized
financing fees.
On August 5, 1998, the Company filed a prospectus and a letter of transmittal
(which together constitute the "Exchange Offer") to exchange $1,000 principal
amount of 8 3/8% Notes (the "New Notes") issued by the Company for each
$1,000 principal of 8.375% Notes (the "Old Notes") originally issued by the
Company on April 15, 1998, of which an aggregate principle amount of $100.0
million is outstanding. The form and terms of the New Notes are identical to
the form and terms of the Old Notes except that the New Notes have been
registered under the Securities Act of 1933, as amended, and will not bear
any legends restricting their transfer. The Exchange Offer was made in order
to satisfy certain contractual obligations of the Company.
9. JUNE EQUITY OFFERING (PRE-SPLIT)
In June 1998, United completed an offering of 2,005,507 shares of Common
Stock (the "June Equity Offering"), consisting of 1,500,000 primary shares
sold by United, and 505,507 secondary shares sold by certain selling
stockholders. The aggregate net proceeds to United of approximately $77.1
million were delivered to USSC and used to repay a portion of indebtedness
under the Tranche A Term Loan Facility (as defined) which caused a permanent
reduction of the amount borrowable thereunder.
United did not receive any of the proceeds from the sale of the 505,507
shares of Common Stock offered by the selling stockholders, other than an
aggregate of approximately $6.4 million paid by the selling stockholders upon
exercise of employee stock options in connection with the June Equity
Offering, which were delivered to USSC and applied to the repayment of
indebtedness under the New Credit Facilities (as defined).
Subsequent to the closing of the June Equity Offering, the underwriters for
such offering exercised an overallotment option to purchase an additional
200,000 shares from United (the "Additional Shares"). The net proceeds to
United of approximately $10.3 million from the sale of such Additional Shares
were delivered to USSC and used to repay an additional portion of the
indebtedness outstanding under the Tranche A Term Loan Facility.
10. COMPUTER SERVICES CONTRACT WRITE-OFF - NON RECURRING CHARGE
As a condition to the spin-off of Associated Stationers Inc. ("ASI") from the
Wholesale Division of Boise Cascade Office Products Corporation in January
1992, ASI entered into the Computer Services Contract with a third party
service provider to perform certain computer services.
Upon completion of the systems integration between USSC and ASI, increasing
differences in the operating processes and technical environment between the
Company and the third party service provider became evident. The Computer
Services Contract was modified to allow the Company, at its discretion, not
to perform any processing at the third-party service provider's facilities.
Accordingly, the related fees were reduced. Payments made to the third-party
service provider subsequent to this final renegotiations were effectively for
disaster recover purposes only. The Company has recently consolidated its
disaster recovery services under an agreement with another third-party
service provider. In May 1998, the Company completed an assessment of the
future utility of the Computer Services Contract. Based upon such assessment,
the Company has determined that it is no longer feasible to use the prior
third-party service provider for disaster recovery purposes.
-10-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the second quarter, the Company wrote off the remaining term of the
Computer Services Contract. As a result, the Company recorded a non-recurring
charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million),
which includes a $2.5 million prepaid expense and $11.3 million of future
payments.
11. SUMMARIZED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES
Azerty Incorporated, Positive ID Wholesale Inc., and AP Support Services
Incorporated (collectively, the "Azerty Guarantor Subsidiaries") and Lagasse
Bros., Inc. ("Lagasse") guarantee the 8.375% Senior Subordinated Notes due
2008 (the "Notes") issued by United Stationers Supply Co. ("USSC"). The
Azerty Guarantor Subsidiaries and Azerty de Mexico, S.A. de C.V.
(collectively, the "Azerty Business") were acquired on April 3, 1998.
Set forth below is summarized combined financial data for the Azerty Business
(subsequent to its acquisition by USSC) and Lagasse. Summarized combined
financial data as of September 30, 1998 and for the three months then ended
reflects both Lagasse and the Azerty Business. The summarized combined income
statement data for the nine months ended September 30, 1998 reflects the
operations of Lagasse for the nine- month period and the Azerty Business for
the six months ended September 30, 1998. Summarized financial data as of
December 31, 1997 and for the three and nine-month periods ended September
30, 1997 reflect Lagasse only.
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Balance Sheet Data:
Current assets $143,559 $ 29,731
Total assets 260,040 68,766
Current liabilities 72,236 13,564
Total liabilities 73,981 18,490
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 132,154 $ 26,056 $ 280,527 $ 71,545
Gross margin 14,626 5,089 32,631 13,259
Operating income 5,600 2,586 12,122 6,009
Net income 2,741 1,415 6,032 3,161
</TABLE>
Set forth below is summarized combined financial data for the Azerty Business
for periods prior to its acquisition by USSC.
<TABLE>
<CAPTION>
As of
December 31,
1997
------------------
<S> <C>
Balance Sheet Data:
Current assets $83,986
Total assets 105,993
Current liabilities 51,678
Total liabilities 74,460
</TABLE>
-11-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine months
Ended Ended Ended
March 31, 1998 September 30, 1997 September 30, 1997
-------------- ------------------ ------------------
<S> <C> <C> <C>
Income Statement Data:
Net sales $99,723 $ 88,870 $ 177,237
Gross margin 8,673 7,561 15,538
Operating income 2,454 2,577 5,259
Net income 1,147 1,393 2,758
</TABLE>
12. RECENT ACCOUNTING PRONOUNCEMENT
During June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities," which will be
effective for the Company's calendar year 2000. This statement establishes
accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded on the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company is currently assessing the impact of
this new statement on its consolidated financial position, liquidity, and
results of operations.
-12-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMMENTS ON FORWARD LOOKING INFORMATION
- ---------------------------------------
With the exception of statements with regard to historical matters, the
matters discussed in this Form 10-Q contain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements involve risks and uncertainties which
could cause actual results to differ materially from the forward-looking
information. Such risks and uncertainties include, but are not limited to,
the highly-competitive environment in which the Company operates, the
integration of acquisitions, changes in end-users' traditional demands for
business products, reliance by the Company on certain key suppliers, and the
effects on the Company of fluctuations in manufacturers' pricing and general
economic conditions. A description of these factors, as well as other factors
which could affect the Company's business, is set forth in filings by the
Company with the Securities and Exchange Commission, including the Company's
Prospectus dated June 10, 1998.
BUSINESS STRATEGY
- -----------------
United Stationers' strategy is to create value in the supply chain for both
resellers and manufacturers. By reducing the overall cost of distribution,
the Company believes its role as a wholesaler will continue to expand and
that it can achieve above industry-average growth rates.
The Company believes that it has the opportunity to capture a portion of the
sales of business products currently sold directly by manufacturers to
resellers without wholesaler involvement. Currently, only approximately 20%
of manufacturers' shipments of business products move through wholesalers.
The Company believes that as resellers intensify their focus on asset
management, return on investment and inventory efficiency, they will continue
de-stocking and increasingly rely on United Stationers' products and services
to meet end-user requirements for a high order fill rate on a broad product
assortment available on an overnight basis.
The Company plans to continue to expand its customer base by: (i) maintaining
and building its business with commercial dealers and contract stationers;
(ii) developing additional programs for marketing and buying groups; (iii)
continuing to focus on complementary markets, including specialty dealers;
and (iv) expanding geographically, both within the United States and,
potentially, internationally.
The Company plans to expand its product line. These plans include developing
its newer product categories, such as office furniture, computer supplies and
peripherals, facilities management supplies and janitorial and sanitation
supplies, as well as potentially offering new products or services. The
Company also plans to continue to expand its line of private brand products.
The Company believes that its various products and services are complementary
and that there are significant opportunities to cross-sell to existing
customers. By implementing this strategy, management believes the Company can
enhance sales as resellers purchase a broader selection of products offered
by the Company, thereby reducing end-user procurement costs and enhancing
reseller profitability.
The Company intends to continue to invest in information systems enhancements
and customer interfaces that management believes will allow it to capture a
growing percentage of its customers' business. In addition, as the Internet
becomes increasingly important as a marketing channel, the Company is
positioned to participate in this trend with direct, on-line access by its
resellers to its 35,000 SKU general line catalog.
-13-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS STRATEGY (CONTINUED)
- ----------------------------
The Company believes it can enhance its growth by continuing to make
strategic acquisitions. For example, the acquisition of Lagasse Bros., Inc.
("Lagasse") in 1996 substantially increased the Company's position in the
janitorial and sanitation supplies product category. The April 1998 Azerty
Acquisition has also expanded the Company's product offerings and made it one
of the largest distributors of computer consumable supplies in the United
States. The Company intends to continue, from time to time, to pursue
acquisitions that expand its customer base, increase its geographic reach
and/or broaden its product offering.
THIRD QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH THE
THIRD QUARTER ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------
NET SALES. Net sales were $795.4 million in the third quarter of 1998, a
22.2% increase over net sales of $650.9 million in the third quarter of 1997.
The Company experienced sales strength in all geographic regions and across
all product categories. Organic sales in the third quarter of 1998 increased
by 7.5%.
During the third quarter of 1998, the Company experienced slowing sales
growth reflecting weakness in the economy. Current trends indicate that the
sales growth rate in the near-term will be at the low end of our stated goal
of 6% to 9%. The Company has initiated several programs to stimulate
additional revenue growth in 1999.
GROSS MARGIN. Gross margin declined to 17.1% in the third quarter of 1998
compared with 17.6% in 1997. This decrease is primarily the result of the
blending of the lower-margin computer consumables business (Azerty) into the
Company's overall margin mix. Increases in vendor allowances partially offset
the margin decline due to change in product mix discussed above.
OPERATING EXPENSES. Operating expenses as a percent of net sales declined to
11.5% in 1998 compared with 12.4% in 1997. This reduction represents the
impact of Azerty's lower operating expense ratio.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 5.6% in 1998 compared with 5.2% in 1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 0.9%
compared with 2.0% in 1997. This reduction reflects the continued leveraging
of fixed interest costs against higher sales and the repayment of
indebtedness with the proceeds received from the June Equity Offering, the
Receivables Securitization Program, and the October 1997 equity offering.
These transactions were partially offset by the acquisition of Azerty, in
April of 1998, for a purchase price of $115.7 million and the placement of
$100.0 million of Senior Subordinated Notes at 8.375%, in April of 1998.
OTHER EXPENSE. Other expense as a percent of net sales was 0.4% in 1998. This
expense represents the costs associated with the sale of certain trade
accounts receivable through an asset-backed securitization program. These
costs vary on a monthly basis and are generally related to certain interest
rates.
INCOME BEFORE INCOME TAXES. Income before income taxes as a percent of net
sales increased to 4.3% from 3.2% in 1997.
NET INCOME. Net income as a percent of net sales increased to 2.5% compared
with 1.8% in 1997.
-14-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE
NINE MONTHS ENDED SEPTEMBER 30, 1997
- ------------------------------------------------------
NET SALES. Net sales for the nine months ended September 30, 1998 were $2.3
billion, up 19.2%, compared with $1.9 billion in 1997. The Company
experienced sales strength in all geographic regions and across all product
categories.
During the third quarter of 1998, the Company experienced slowing sales
growth reflecting weakness in the economy. Current trends indicate that the
sales growth rate in the near-term will be at the low end of our stated goal
of 6% to 9%. The Company has initiated several programs to stimulate
additional revenue growth in 1999.
GROSS MARGIN. Gross margin declined to 17.1% in the third quarter of 1998
compared with 17.3% in 1997. This decrease is primarily the result of the
blending of the lower-margin computer consumables business (Azerty) into the
Company's overall margin mix beginning in the second quarter of 1998.
Increases in vendor allowances partially offset the margin decline due to
change in product mix discussed above.
OPERATING EXPENSES. Operating expenses as a percent of net sales, before a
non-recurring charge, declined to 11.7% in 1998 compared with 12.2% in 1997.
The non-recurring charge recorded in the second quarter of 1998 of $13.9
million ($8.3 million net of tax benefit of $5.6 million) related to the
write-off of a contract for computer services from a vendor. This reduction
represents the impact of Azerty's lower operating expense ratio. Operating
expenses as a percent of net sales, including the aforementioned charges, was
12.3% in 1998.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales,
before a non-recurring charge, increased to 5.4% in 1998 from 5.1% in 1997.
Including the non-recurring charge, income from operations as a percent of
net sales was 4.8%.
INTEREST EXPENSE. Interest expense as a percent of net sales was 1.3%
compared with 2.2% in 1997. This reduction reflects the continued leveraging
of fixed interest costs against higher sales and the repayment of
indebtedness with the proceeds received from the June Equity Offering, the
Receivables Securitization Program, and the October 1997 equity offering.
These transactions were partially offset by the acquisition of Azerty, in
April of 1998, for a purchase price of $115.7 million and the placement of
$100.0 million of Senior Subordinated Notes at 8.375%, in April of 1998.
OTHER EXPENSE. Other expense as a percent of net sales was 0.2% in 1998. This
expense represents the costs associated with the sale of certain trade
accounts receivable through an asset-backed securitization program. These
costs vary on a monthly basis and are generally related to certain interest
rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item as a percent of net sales, excluding the impact of the
non-recurring charge, increased to 3.9% from 2.9% in 1997. Including the
non-recurring charge, income before income taxes and extraordinary item as a
percent of net sales was 3.3%.
NET INCOME. Net income in 1998 includes an extraordinary item, loss on the
early retirement of debt of $9.9 million ($5.9 million net of tax benefit of
$4.0 million). Net income as a percent of net sales, excluding the impact of
the non-recurring charge and the extraordinary item, increased to 2.2%
compared with 1.7% in 1997. Including the impact of the non-recurring charge
and the extraordinary item, net income as a percent of net sales was 1.6% in
1998.
-15-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1998, the credit facilities under the Amended and
Restated Credit Agreement (the "New Credit Agreement") consisted of $60.5
million of term loan borrowings (the "Term Loan Facilities") and zero
borrowings under a $250.0 million revolving loan facility (the "Revolving
Credit Facility"). In addition, the Company has $100.0 million of 12.75%
Senior Subordinated Notes due 2005, $100.0 million of 8.375% Senior
Subordinated Notes due 2008, $29.8 million of industrial revenue bonds and a
$1.9 million mortgage.
The Term Loan Facilities consist of a $60.5 million tranche A term loan
facility (the "Tranche A Term Loan Facility"), which is scheduled to mature
on or about March 31, 2004. The term loans under the Tranche A Term Loan
Facility are repayable in consecutive quarterly installments which began on
June 30, 1998, the first four of which are each in the amount of $1.0
million, the next four of which are each in the amount of $1.5 million, the
next four of which are each in the amount of $2.6 million, the next four of
which are each in the amount of $3.1 million and the last eight of which are
each in the amount of $3.7 million.
The loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility generally bear interest as determined within a set range with the
rate based on the ratio of total debt (which excludes the face amount of any
undrawn letters of credit) of United and its subsidiaries to EBITDA (as
defined in the New Credit Agreement). The Tranche A Term Loan Facility and
the Revolving Credit Facility bear interest, at the option of the Company and
based upon financial performance, at the base rate (i.e., the higher of the
prime rate or federal funds plus 0.50%) plus 0% to 0.75% or LIBOR plus 1.00%
to 2.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financing of this
type. As of September 30, 1998, the Company was in compliance with all
covenants contained in the Credit Agreement.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the Credit
Agreement, will be sufficient to meet the short-term (less than twelve
months) and long-term operating and capital needs of the Company, as well as
to service its debt in accordance with its terms. There is, however, no
assurance that this will be accomplished.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC,
and bank borrowings by USSC. The New Credit Agreement, 8.375% Notes Indenture
and the 12.75% Note Indenture contain restrictions on the ability of USSC to
transfer cash to United.
The statements of cash flows for the Company for the periods indicated are
summarized below:
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-----------------------------
1998 1997
--------- ---------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 311,136 $ 127,515
Net cash used in investing activities (130,577) (8,097)
Net cash used in financing activities (167,988) (113,339)
</TABLE>
Net cash provided by operating activities during the first nine months of
1998 increased to $311.1 million from $127.5 million in the comparable
prior-year period. This increase was primarily the result of a decrease in
accounts receivable resulting from the sale of certain trade accounts
receivable through an asset-backed securitization program, a decrease in
inventory and an increase in accounts payable.
-16-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- ------------------------------------------
Net cash used in investing activities during the first nine months of 1998
was $130.6 million compared with $8.1 million used in the first nine months
of 1997. The increase in cash used was primarily due to the acquisition of
Azerty Inc. and an increase in capital expenditures.
Net cash used in financing activities during the first nine months of 1998
was $168.0 million compared with $113.3 million for the first nine months of
1997. This increase was due primarily to the reduction of debt due to the
application of proceeds from the June Equity Offering and the sale of certain
trade accounts receivable through an asset-backed securitization program.
Receivables Securitization Program
On April 3, 1998, in connection with the refinancing of its Existing Credit
Facilities, the Company entered into the $163.0 million 364-day Receivables
Securitization Program pursuant to which the Company sells its Eligible
Receivables (except for certain excluded receivables, which initially
includes all receivables from the Azerty Business and Lagasse) to the
Receivables Company, a wholly-owned offshore, bankruptcy-remote special
purpose limited liability company, which in turn ultimately transfers the
Eligible Receivables to a third-party, multi-seller asset-backed commercial
paper program existing solely for the purpose of issuing commercial paper
rated A-1/P-1 or higher. The sale of trade receivables includes not only
those Eligible Receivables that were existing on the closing date of the
Receivables Securitization Program, but also Eligible Receivables created
thereafter.
The Chase Manhattan Bank acts as funding agent and, together with other
commercial banks rated at least A-1/P-1, provides standby liquidity funding
to support the purchase of the receivables by the Receivables Company. The
proceeds from the Receivables Securitization Program were used to reduce
borrowings under the Company's Revolving Credit Facility. The Receivables
Company retains an interest in the Eligible Receivables transferred to the
third party. The Receivables Securitization Program carries an effective
interest rate of LIBOR plus 0.37%. As a result of the Receivables
Securitization Program, actual balance sheet assets of the Company as of
September 30, 1998 of approximately $160.0 million, consisting of accounts
receivable, have been sold to the Receivables Company and do not secure the
Company's obligations under the New Credit Facilities.
Year 2000
The Company relies on both information technology ("IT") and non-IT computer
systems in its operations. The mission-critical IT systems include the
Company's operating and accounting systems, such as IT software applications
that allow the Company to maintain inventory and customer information and to
communicate with its suppliers and customers. The non-IT systems are
primarily telecommunications systems and the embedded microprocessors that
control warehouse and other building systems, such as inventory control
devices, security systems, lighting, fire and safety systems, and heating,
ventilating and air conditioning systems.
In 1996, the Company began to address the year 2000 problem (that is, the
fact that some systems may fail or produce inaccurate results using dates in
or around the year 2000). The Company has formed a year 2000 task force under
its Chief Information Officer to coordinate and implement measures designed
to prevent disruption in its business operations related to the year 2000
problem. The Company is scheduled to complete the remediation of its
mission-critical IT applications software in December 1998 and to complete an
end-to-end test of its IT systems by July 1999. The Company is assessing the
effect of the year 2000 problem on its non-IT systems and intends to replace
non-IT systems as necessary to become year 2000 ready by December 1999.
-17-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- ------------------------------------------
The Company is also working with its customers and suppliers to determine
whether the year 2000 problem will have an adverse effect on the Company's
relationships with them. Beginning with the Company`s catalog for 1999, the
Company's product suppliers have assured the Company that their products will
be year 2000 ready. However, the Company does not control its suppliers and
relies on a variety of utilities, telecommunications companies and other
suppliers in order to continue its business.
The Company is developing contingency plans to address the risks created by
the year 2000 problem. These plans include procuring alternative suppliers,
when available, when the Company is able to conclude that an existing
supplier will not be year 2000 ready. The Company is scheduled to complete
these contingency plans by July 1999.
During 1997, the Company incurred approximately $1.4 million of expenses
related to this issue and expects to incur an additional $1.2 million to $1.9
million of such expenses over the next year. For the nine months ended
September 30, 1998, the Company incurred $1.2 million of such expenses.
Funding for year 2000 expenses will be generated from on-going operations and
available borrowings under the Credit Agreement.
There can be no assurance that year 2000 remediation by the Company or third
parties will be properly and timely completed and failure to do so could have
a material adverse effect on the Company's financial condition. The Company
cannot predict the actual effects to it of the year 2000 issue, which depends
on numerous uncertainties such as: (1) whether major third parties address
this issue properly and timely and (2) whether broad-based or systemic
economic failures may occur. The Company is currently unaware of any events,
trends, or condition regarding this issue that may have a material effect on
the Company's results of operations, liquidity, and financial position. If
the year 2000 issue is not resolved by January 1, 2000 the Company's results
of operations or financial condition could be materially adversely affected.
-18-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable
ITEM 2 CHANGES IN SECURITIES
Not applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5 OTHER INFORMATION
Not applicable
<TABLE>
<CAPTION>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number
-------
<S> <C> <C>
2 Not applicable
11 Not applicable
15.1 Letter regarding unaudited interim
financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27.1 Financial Data Schedule - United Stationers Inc.(1997)
27.2 Financial Data Schedule - United Stationers Inc.(1998)
27.3 Financial Data Schedule - United Stationers Supply Co.
(1997)
27.4 Financial Data Schedule - United Stationers Supply Co.
(1998)
99 Not applicable
(b) The Company filed a report on Form 8-K on October 2,
1998 reporting under Item 5 the resignation of Gary
G. Miller from the board of directors of the Company.
The Company filed a report on Form 8-K on August 15,
1998 reporting under Item 5 the appointment of Max
Hopper to its board of directors.
</TABLE>
-19-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
-----------------------------------
(Registrant)
Date: October 30, 1998 /s/ Daniel H. Bushell
------------------- -----------------------------------
Daniel H. Bushell
Executive Vice President and
Chief Financial Officer
-20-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
(a) Exhibit
Number
-------
<S> <C>
2 Not applicable
11 Not applicable
15.1 Letter regarding unaudited interim
financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27.1 Financial Data Schedule - United Stationers Inc. (1997)
27.2 Financial Data Schedule - United Stationers Inc. (1998)
27.3 Financial Data Schedule - United Stationers Supply Co.
(1997)
27.4 Financial Data Schedule - United Stationers Supply Co.
(1998)
99 Not applicable
</TABLE>
-21-
<PAGE>
EXHIBIT 15.1
November 2, 1998
The Board of Directors
United Stationers, Inc.
We are aware of the incorporation by reference in the Registration Statement
on Form S-8 of United Stationers Inc. for the registration of 4,100,000
shares of its common stock relating to the unaudited condensed consolidated
interim financial statements of United Stationers Inc. which are included in
its Form 10-Q for the quarter ended September 30, 1998.
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0000355999
<NAME> UNITED STATIONERS INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 16,698 16,698
<SECURITIES> 0 0
<RECEIVABLES> 321,434 321,434
<ALLOWANCES> 7,280 7,280
<INVENTORY> 445,787 445,787
<CURRENT-ASSETS> 796,613 796,613
<PP&E> 232,438 232,438
<DEPRECIATION> 67,519 67,519
<TOTAL-ASSETS> 1,101,726 1,101,726
<CURRENT-LIABILITIES> 439,133 439,133
<BONDS> 0 0
0 0
0 0
<COMMON> 2,342 2,342
<OTHER-SE> 86,631 86,631
<TOTAL-LIABILITY-AND-EQUITY> 1,101,726 1,101,726
<SALES> 650,912 1,895,974
<TOTAL-REVENUES> 650,912 1,895,974
<CGS> 114,442 327,918
<TOTAL-COSTS> 114,442 327,918
<OTHER-EXPENSES> 80,836 231,270
<LOSS-PROVISION> 637 2,315
<INTEREST-EXPENSE> 12,998 41,526
<INCOME-PRETAX> 20,608 55,122
<INCOME-TAX> 8,741 23,376
<INCOME-CONTINUING> 11,867 31,746
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,867 31,746
<EPS-PRIMARY> 0.46 1.23
<EPS-DILUTED> 0.37 1.02
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000355999
<NAME>UNITED STATIONERS INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 24,938 24,938
<SECURITIES> 0 0
<RECEIVABLES> 233,335 233,335
<ALLOWANCES> 9,844 9,844
<INVENTORY> 510,252 510,252
<CURRENT-ASSETS> 776,909 776,909
<PP&E> 259,064 259,064
<DEPRECIATION> 94,080 94,080
<TOTAL-ASSETS> 1,141,903 1,141,903
<CURRENT-LIABILITIES> 460,712 460,712
<BONDS> 0 0
0 0
0 0
<COMMON> 3,686 3,686
<OTHER-SE> 344,717 344,717
<TOTAL-LIABILITY-AND-EQUITY> 1,141,903 1,141,903
<SALES> 795,407 2,259,890
<TOTAL-REVENUES> 795,407 2,259,890
<CGS> 136,275 385,227
<TOTAL-COSTS> 136,275 385,227
<OTHER-EXPENSES> 91,594 283,268
<LOSS-PROVISION> 779 3,571
<INTEREST-EXPENSE> 10,169 33,896
<INCOME-PRETAX> 34,513 73,269
<INCOME-TAX> 14,634 31,070
<INCOME-CONTINUING> 19,879 42,199
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (5,907)
<CHANGES> 0 0
<NET-INCOME> 19,879 36,292
<EPS-PRIMARY> .54 1.07
<EPS-DILUTED> .52 1.02
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY COMPANY
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 16,698 0
<SECURITIES> 0 0
<RECEIVABLES> 321,434 321,434
<ALLOWANCES> 7,280 7,280
<INVENTORY> 445,787 445,787
<CURRENT-ASSETS> 796,613 796,613
<PP&E> 232,438 232,438
<DEPRECIATION> 67,519 67,519
<TOTAL-ASSETS> 1,101,726 1,101,726
<CURRENT-LIABILITIES> 439,133 439,133
<BONDS> 0 0
0 0
0 0
<COMMON> 2,342 2,342
<OTHER-SE> 86,631 86,631
<TOTAL-LIABILITY-AND-EQUITY> 1,101,726 1,101,726
<SALES> 650,912 1,895,974
<TOTAL-REVENUES> 650,912 1,895,974
<CGS> 114,442 327,918
<TOTAL-COSTS> 114,442 327,918
<OTHER-EXPENSES> 80,836 231,270
<LOSS-PROVISION> 637 2,315
<INTEREST-EXPENSE> 12,998 41,526
<INCOME-PRETAX> 20,608 55,122
<INCOME-TAX> 8,741 23,376
<INCOME-CONTINUING> 11,867 31,746
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,867 31,746
<EPS-PRIMARY> .46 1.23
<EPS-DILUTED> .37 1.02
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY COMPANY
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 24,938 24,938
<SECURITIES> 0 0
<RECEIVABLES> 233,335 233,335
<ALLOWANCES> 9,844 9,844
<INVENTORY> 510,252 510,252
<CURRENT-ASSETS> 776,909 776,909
<PP&E> 259,064 259,064
<DEPRECIATION> 94,080 94,080
<TOTAL-ASSETS> 1,141,903 1,141,903
<CURRENT-LIABILITIES> 460,712 460,712
<BONDS> 0 0
0 0
0 0
<COMMON> 3,686 3,686
<OTHER-SE> 344,717 344,717
<TOTAL-LIABILITY-AND-EQUITY> 1,141,903 1,141,903
<SALES> 795,407 2,259,890
<TOTAL-REVENUES> 795,407 2,259,890
<CGS> 136,275 385,227
<TOTAL-COSTS> 136,275 385,227
<OTHER-EXPENSES> 91,594 283,268
<LOSS-PROVISION> 779 3,571
<INTEREST-EXPENSE> 10,160 33,896
<INCOME-PRETAX> 34,513 73,269
<INCOME-TAX> 14,634 31,070
<INCOME-CONTINUING> 19,879 42,199
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (5,907)
<CHANGES> 0 0
<NET-INCOME> 19,879 36,292
<EPS-PRIMARY> 0.54 1.07
<EPS-DILUTED> 0.52 1.02
</TABLE>
